Mining a recession: how tech startups can strike gold

The reality is, being a startup founder is no longer sexy. Today’s economic climate is dramatically shifting across industries — especially in tech — from layoffs and inflation to rising interest rates and a looming recession.

We all know a recession produces a range of negative impacts. However, it also presents opportunities to revolutionize and transform for those who look. The key is to be resilient, adaptable, and innovative through changing market conditions. Think Microsoft, Airbnb, Slack, and Zoom, all hugely successful companies that started during recessions. There is no question that new problems will arise, but with that, new industries, products and services will come to life — and for an entrepreneur, that’s gold.

For a long time, a startup’s ultimate goal was to achieve unicorn status, characterized by rapid growth and high valuations. In today’s climate, operating with this mindset isn’t realistic nor sustainable — inflated company evaluations do no favours to startups, especially on the heels of a recession. Instead, companies need to embody the camel, a future-orientated animal that conserves its resources to endure harsh conditions and adapt to any environment. This concept was originally coined by venture capitalist Alex Lazarow, who encourages startups to focus on building resilience and flexibility to survive and prosper long-term.

Want to strike business gold? Here’s how to embrace the camel mindset to set your company up for long-term success.

Be bullish.

Problem: Startup originality is rare. As the number of tech businesses grows, it is increasingly more work for startups to differentiate from the competition and offer truly innovative products, services and value. A more saturated market means increased competition for funding, customers and talent, leading some companies to replicate already successful business models.

Opportunity: With a recession comes new consumer needs and new problems. Now is the time to be proactive and address these needs. Stand out to investors and tap into new customer segments with a unique offering.

1. Look for untapped needs: Be more obsessed with the problem than the solution. Identify problems that still need to be addressed or solved effectively. Unique problems = unique solutions.
2. Seek out diverse perspectives: Look beyond your industry and sector; connect with people with varied backgrounds and experiences to gain fresh insight.
3. Experiment: Don’t be afraid to take calculated risks and experiment with different approaches.

Optimize your human capital.

Problem: Layoffs and financial insecurity may hit your company – a recession is the time to feed the winners and cut those who are underperforming. It’s easy for team members to feel discouraged and disconnected from a company’s mission. Your company is your community; nurturing your culture in challenging times is more important than ever.

Opportunity:

1. Prioritize honest communication: Be transparent about your startup’s position; open communication is vital to trust. Involve all levels in finding solutions to create a shared sense of purpose and belonging.
2. Recalibrate your team: Build the right data systems, structure and practice to improve quality assurance, program execution, and team communications. This also means a smarter team to help deliver what is needed now.
3. Remove silos: Encourage cross-functional collaboration and create opportunities to connect through events, lunches, team-building exercises, etc. Measure success and failure as a collective.
4. Show appreciation: Recognize and reward your team for their contributions. Boosting morale is key to culture, motivation, and productivity.

Get scrappy.

Problem: Funding has always been challenging to secure as a founder, especially with the recent boom of tech startups. Throw economic uncertainties into the mix, and you have a recipe for dry capital as investors like Venture Capitalists (VCs) and Angels become more risk-averse to investing in new startups.

Opportunity: Finesse your business strategy and get scrappy.

1. Focus on your competitive edge: Execute a clear, well-defined value proposition that demonstrates your startup’s advantage in the market.
2. Showcase your adaptability and leadership: Investors are interested in companies that can adapt to a changing economic environment. Highlight your leadership skills, from navigating the recession to making smart business decisions.
3. Build relationships with investors: Establish relationships before seeking funding to understand their criteria better and increase your startup’s visibility.
4. Consider alternative financing options: Now, many financing options are available for startups with lower barriers to entry and greater flexibility. These include crowdfunding, grants, revenue-based financing, debt financing, and incubator and accelerator programs like the DMZ.

Facing a recession as an entrepreneur can be daunting, but you don’t have to do it alone. Join a startup incubator like the DMZ and participate in a community of diverse startups, mentors, and industry experts. Access resources like office space, funding, mentorship, and networking opportunities to refine your business with expert guidance.

Check out how the DMZ can help propel your business forward, even in the most challenging times here.

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